This was a very insightful and fun read. One thing that comes up for me is also durability. Packaged food is something that is consumed in (for the most part) one or maybe two sittings. A face cream, however, would last me months. Per usage, the spends may be equitable. A consumer, assuming they are using both the cream and consuming a protein bar/powder 20-25 times a month, will land up spending just as much.
Loved the post and details to support your arguments. A friend of mine who runs a packaged food company (trying to give clean, quality food) explained me the same problem (with GM), but they dont want to compromise on the philosophy on which they started the business.
Skin care consumers penetration is still limited to top percentile, for a lack of better word, ‘urban/luxury spenders’, whereas packaged food has penetrated over a larger spectrum.
Hence, skin care brands are maximising by extracting more from less which is vice-versa for packaged food.
Loved reading these insights Shashank. I'm now looking forward to your post on the restaurant business!
I'm trying to popularise Eating ethical meat (some would say that sounds oxymoronic!). Our chicken meat costs 4 times the normal meat but adds to a person's and planet's well being in the long run, besides the benefit of giving a good life to the birds. But then you can't wear it on your sleeves and show it around. So I completely understand your point why people spend more on things that makes one 'look good' rather than make one feel good from inside - both soulfully and healthfully :)
I was about to bring a point on how fancy restaurants are able to attract high gross margins, but you covered it in the end. Also in India, we have evolved eating cheap , sub-standard packaged food, so we have that price anchor, which makes it super difficult to spend on food, unlike facial creams or serums which have been looked up as a want rather than need. I remember when I was building my premium North-Indian food delivery brand, and I used to sell Dal-Makhani at 320-350 price range, people woud just love the taste, but will question the price range, despite acknowledging the fact that it is preservative and artifical colour free(which elevvated by COGS and hence a higher price), but will just not get over the below 200 INR dal-makhani made with full of aritifical flavours and sub-par ingridients.
..90% of indians aware of what goes in to making dalmakhani and how much the ingredients cost. Many people won't spend so much on serums etc the if they know the actual cost of making.
Even phsycology is also a factor here , avg indian will never be happy if they pay 300-400 for a daal makhani made with 60 gm dal ,how ever good the taste is.
Atleast this is changing in tier 1 cuties with indian A customers who never had any experience of buying groceries and making food..I know many people who can't even estimate how much a kg dal costs and how many serves a kg chicken makes.
yes, as i said bigger factor of price anchoring/psychology when comes to food, because we have been a lot privy to price of making at home vs price it is sold for at a restaurant, hence premium better ingridient products in food face an outcry and slow acceptance from the consumers.
My observations on a few categories in processed food are trying to make the products flaunt worthy. Especially in categories that you store. For eg Davidoff coffee vs our good old Bru has made into shelves. Brands like Farmley has made space on office tables while the Tata sampann is in the grocery basket. Brands like the whole truth helps me flaunt that I chose to eat healthy.
We have a long way to go to make the entire food supply chain worthy beginning right from the farmers.
This was eye-opening! And while reading I realized how I am guilty of this selective splurging too. My priorities go like - fresh food/fruits > superficial stuff > packaged food (despite understanding if and when it is good/healthy/clean).
This reminds me of the Magnum ice cream insight, "Magnum give you a visa of social distinction" which we uncovered to make the brand aspiration and not a "Mahenga Chocobar" (Consumer Verbatim).
We used the signalling insight to build aspiration by affiliating ourselves with fashion which helped our cause back then.
So, "Signalling helps sustain your gross margin", can this be the title? :)
Quite an eye opener for me. As a budding 100% Nutrition food business-woman, I am hopeful that people will prioritise inner health. It is like a rich derma treatment, you do not see the results in a single sitting (not a bridal makeup it is). But, over few weeks, you feel changes in your body. In few months, others also notice changes in your body. This, in a way, is a long-term investment on one's looks :) ..
All the best to TWT and you Shashank. We lookup to you.
Pretty much any packaged food can be categorized as either staple or 'good to have'. Staples are commodities, so high competition. But make up most of the grocery budget. Indians have the mindset of comparing price of 'good to have' products to cost of making it at home, because traditional households (still an overwhelming percentage) have women cooking and making naashta items. That's why mixes do well in India. You can't charge a premium if the cost alternate is good old fashioned free motherly labour and house-helps. Societies where there women labourforce participation is high would likely see a higher propensity to pay for packaged food. Not sure if India will get get there - its a cultural thing.
Multiple Points on the Article which needs to be questioned
-Question then remains how do you make food brands aspirational. If I include drinks in Food - Some of the largest scaled brands are there in those category aka Coke and making food cool
- If we leave it on pure food , taste is the largest moat aka Maggi and variety can be a moat too aka Haldirams
- Poor Gross Margins also come from lower differentiation or Very very large markets so typically conversion is much easier so comparison to Snail Mucin might not be right
I don’t think the margin profiles are incorrect as packaged food would/should be consumed more often as is the case in West. I’d assume that everyone in this industry (startups or mnc) is a price taker and cannot truly differentiate in such a way that they can dictate the price. It’s futile to discuss comsumers willingness to pay which relies on n factors, rather solve for, why aren’t we buying/choosing (healthy) packaged food more often. It’d be easier to arrive at a higher average spend per consumer in a month through repeat sales rather than more revenue per spend, as snacking is and will always be a habit. Habit formation and behaviour is easier to explain/solve for than value of a good.
Now repeat sales would also rely on income of consumer, I doubt they are are enough people who can afford to spend upwards of 1-2k a month on snacking. Therefore, I think the revenues are justified for the time being and as india grows, the demand will also grow for the category. The TAM of personal care and packaged food isn’t comparable, so the revenues shouldn’t be either
Love reading your posts, but this time I would like to add a few points from my personal experience of selling packaged food and the reasons for getting out of it.
India is a market where people are solving for money, not time. The day this changes, packaged food companies will check all the boxes, especially gross margin. When I started selling health bars in India in 2013, cosumers perceived health bars as 'chikki' and questioning why we charged 3x the cost when they can easily make that at home. Then came the perception of consuming something fresh versus eating something that has been made and packed for days.
Hopefully, you are the one whos going to change all this in India. I am rooting for your success!
It is also the need for a better entrenched distribution network. Most new age food brands are not available at every kirana or neighbourhood retail store. Unlike skin care/haircare people are not ready to wait for 2-3 days for their food products to get delivered. The lack of ease in procurement obstructs any brand loyalty from getting created. Also healthy/organic food products are automatically considered a niche product and middle income households are refusing to incorporate them in their monthly grocery budget( again because it does not show to the outside world). This mindset too needs to evolve. I believe a targeted marketing strategy that educates the customer would help.
I was wondering if this could perhaps change (people willing to pay more, increased GMs) by making the packaging more premium and perhaps a method where you can use the packaging as a holder to eat the bar - this way you don't throw the packaging away and people see it too.
Because I feel there are some food companies which sort of have this premium brand positioning like Magnum - people know its premium mainly because of the marketing, packaging and of course the product.
This was a very insightful and fun read. One thing that comes up for me is also durability. Packaged food is something that is consumed in (for the most part) one or maybe two sittings. A face cream, however, would last me months. Per usage, the spends may be equitable. A consumer, assuming they are using both the cream and consuming a protein bar/powder 20-25 times a month, will land up spending just as much.
Loved the post and details to support your arguments. A friend of mine who runs a packaged food company (trying to give clean, quality food) explained me the same problem (with GM), but they dont want to compromise on the philosophy on which they started the business.
Thanks for doing what you are doing!
-A loyal customer!
Loved the post!
My hypothesis is-
Skin care consumers penetration is still limited to top percentile, for a lack of better word, ‘urban/luxury spenders’, whereas packaged food has penetrated over a larger spectrum.
Hence, skin care brands are maximising by extracting more from less which is vice-versa for packaged food.
Loved reading these insights Shashank. I'm now looking forward to your post on the restaurant business!
I'm trying to popularise Eating ethical meat (some would say that sounds oxymoronic!). Our chicken meat costs 4 times the normal meat but adds to a person's and planet's well being in the long run, besides the benefit of giving a good life to the birds. But then you can't wear it on your sleeves and show it around. So I completely understand your point why people spend more on things that makes one 'look good' rather than make one feel good from inside - both soulfully and healthfully :)
I was about to bring a point on how fancy restaurants are able to attract high gross margins, but you covered it in the end. Also in India, we have evolved eating cheap , sub-standard packaged food, so we have that price anchor, which makes it super difficult to spend on food, unlike facial creams or serums which have been looked up as a want rather than need. I remember when I was building my premium North-Indian food delivery brand, and I used to sell Dal-Makhani at 320-350 price range, people woud just love the taste, but will question the price range, despite acknowledging the fact that it is preservative and artifical colour free(which elevvated by COGS and hence a higher price), but will just not get over the below 200 INR dal-makhani made with full of aritifical flavours and sub-par ingridients.
It has more to do with awareness
..90% of indians aware of what goes in to making dalmakhani and how much the ingredients cost. Many people won't spend so much on serums etc the if they know the actual cost of making.
Even phsycology is also a factor here , avg indian will never be happy if they pay 300-400 for a daal makhani made with 60 gm dal ,how ever good the taste is.
Atleast this is changing in tier 1 cuties with indian A customers who never had any experience of buying groceries and making food..I know many people who can't even estimate how much a kg dal costs and how many serves a kg chicken makes.
yes, as i said bigger factor of price anchoring/psychology when comes to food, because we have been a lot privy to price of making at home vs price it is sold for at a restaurant, hence premium better ingridient products in food face an outcry and slow acceptance from the consumers.
My observations on a few categories in processed food are trying to make the products flaunt worthy. Especially in categories that you store. For eg Davidoff coffee vs our good old Bru has made into shelves. Brands like Farmley has made space on office tables while the Tata sampann is in the grocery basket. Brands like the whole truth helps me flaunt that I chose to eat healthy.
We have a long way to go to make the entire food supply chain worthy beginning right from the farmers.
This was eye-opening! And while reading I realized how I am guilty of this selective splurging too. My priorities go like - fresh food/fruits > superficial stuff > packaged food (despite understanding if and when it is good/healthy/clean).
Keep your blogs coming :)
This reminds me of the Magnum ice cream insight, "Magnum give you a visa of social distinction" which we uncovered to make the brand aspiration and not a "Mahenga Chocobar" (Consumer Verbatim).
We used the signalling insight to build aspiration by affiliating ourselves with fashion which helped our cause back then.
So, "Signalling helps sustain your gross margin", can this be the title? :)
Quite an eye opener for me. As a budding 100% Nutrition food business-woman, I am hopeful that people will prioritise inner health. It is like a rich derma treatment, you do not see the results in a single sitting (not a bridal makeup it is). But, over few weeks, you feel changes in your body. In few months, others also notice changes in your body. This, in a way, is a long-term investment on one's looks :) ..
All the best to TWT and you Shashank. We lookup to you.
All the best to us
Pretty much any packaged food can be categorized as either staple or 'good to have'. Staples are commodities, so high competition. But make up most of the grocery budget. Indians have the mindset of comparing price of 'good to have' products to cost of making it at home, because traditional households (still an overwhelming percentage) have women cooking and making naashta items. That's why mixes do well in India. You can't charge a premium if the cost alternate is good old fashioned free motherly labour and house-helps. Societies where there women labourforce participation is high would likely see a higher propensity to pay for packaged food. Not sure if India will get get there - its a cultural thing.
Interesting. Never thought of the female workforce participation point. Thanks.
Multiple Points on the Article which needs to be questioned
-Question then remains how do you make food brands aspirational. If I include drinks in Food - Some of the largest scaled brands are there in those category aka Coke and making food cool
- If we leave it on pure food , taste is the largest moat aka Maggi and variety can be a moat too aka Haldirams
- Poor Gross Margins also come from lower differentiation or Very very large markets so typically conversion is much easier so comparison to Snail Mucin might not be right
I don’t think the margin profiles are incorrect as packaged food would/should be consumed more often as is the case in West. I’d assume that everyone in this industry (startups or mnc) is a price taker and cannot truly differentiate in such a way that they can dictate the price. It’s futile to discuss comsumers willingness to pay which relies on n factors, rather solve for, why aren’t we buying/choosing (healthy) packaged food more often. It’d be easier to arrive at a higher average spend per consumer in a month through repeat sales rather than more revenue per spend, as snacking is and will always be a habit. Habit formation and behaviour is easier to explain/solve for than value of a good.
Now repeat sales would also rely on income of consumer, I doubt they are are enough people who can afford to spend upwards of 1-2k a month on snacking. Therefore, I think the revenues are justified for the time being and as india grows, the demand will also grow for the category. The TAM of personal care and packaged food isn’t comparable, so the revenues shouldn’t be either
Love reading your posts, but this time I would like to add a few points from my personal experience of selling packaged food and the reasons for getting out of it.
India is a market where people are solving for money, not time. The day this changes, packaged food companies will check all the boxes, especially gross margin. When I started selling health bars in India in 2013, cosumers perceived health bars as 'chikki' and questioning why we charged 3x the cost when they can easily make that at home. Then came the perception of consuming something fresh versus eating something that has been made and packed for days.
Hopefully, you are the one whos going to change all this in India. I am rooting for your success!
Love the read.
Working as an intern in the US for one of the food retailers here, I clearly know how margins are so slim and people still going.
You are a master storyteller Shashank!
It is also the need for a better entrenched distribution network. Most new age food brands are not available at every kirana or neighbourhood retail store. Unlike skin care/haircare people are not ready to wait for 2-3 days for their food products to get delivered. The lack of ease in procurement obstructs any brand loyalty from getting created. Also healthy/organic food products are automatically considered a niche product and middle income households are refusing to incorporate them in their monthly grocery budget( again because it does not show to the outside world). This mindset too needs to evolve. I believe a targeted marketing strategy that educates the customer would help.
I was wondering if this could perhaps change (people willing to pay more, increased GMs) by making the packaging more premium and perhaps a method where you can use the packaging as a holder to eat the bar - this way you don't throw the packaging away and people see it too.
Because I feel there are some food companies which sort of have this premium brand positioning like Magnum - people know its premium mainly because of the marketing, packaging and of course the product.